Sunday, December 28, 2014

Erosion of state’s sovereignty

Dr Arif Azad  

December 28, 2014 

Trade and investment treaties and national sovereign states

On October 19, the International Centre for Settlement of Investment Disputes (ICSID) reserved its judgement on the Reko Diq case filed by the Tethyan Copper Company (TCC) seeking monetary compensation from the Pakistan federal and provincial government for breach of treaty and contract. Yet the Reko Diq dispute is only tip of the iceberg of such cases.

A growing number of claims brought by corporations has arisen from the exploitation of loopholes embedded in the investor state dispute settlement (ISDS) built in most trade and investment treaty nowadays. Despite the demonstrated loopholes, the ISDS has stayed part of a majority of trade and investment treaties. The worry now is that ISDS is being secretly shoehorned into sweeping the Transatlantic Trade and Investment Partnership agreement (TTIP) being negotiated between the EU and the US with little parliamentary and civil society oversight. The agreement has implications for doing business with the US and the EU.

The Transatlantic Trade Investment and Partnership agreement (TTIP) has been on the negotiating table since July 2013. TTIP is chiefly concerned with eliminating customs barriers and non-tariff barriers such as protective regulation governing health, safety and workers’ right which stand in the way of business corporations’ penetration and profitability.

One of the major criticisms of the TTIP is that the agreement is being driven almost wholly by the business interests at the cost of the right of states and their citizens. According to the EU corporate observatory, of the 130 meetings organised in the way of consultation by the EU, 119 have been held with the business leaders giving them an apparently overwhelming say in the formulation of the agreement. In contrast, the civil society and other groups have only been given a token hearing in the process. So much so that even the European Parliament is largely out of picture with the agreement-related information being shared with a very select number of members of European Parliament.

One aspect of TTIP which has caused a huge outcry relates to the insertion of the Article 4 of the mandate which states: “The obligations of the agreement shall be binding on all levels of government. This means that the agreement will apply not just to states but also to all administrative levels of state down to the municipal level.” In the Reko Diq case, it means that the verdict of the Pakistan Supreme Court which ruled against the TCC is certain to be overturned by a panel of private arbiters and corporate lawyers with huge monetary stakes in the monetary outcome of the case.

This and the other similarly weighted provisions in trade and investment agreement add up to the erosion of the sovereignty of states and their federating constituent units in the economic and political policy making process. TTIP is seeking to engineer this through the incorporation of investor-state disputed settlement (ISDS) which is to be arbitrated through mechanism such as International Centre for Settlement of Investment Disputes (ICSID) system through which the Pakistan government is being hauled before the arbitration court with no right of appeal.

As such the country has the responsibility to bring all facts related to the Reko Diq case into the public domain.

ICSID system is run by private arbiters and lawyers who stand to gain from big compensation claims. The systems are heavily rigged against governments and their obligation to protect interest of their citizen. The fear is that the claims against government such as Reko Diq are going to preliterate as a result of the incorporation of ISDS in the TTIP. Such claims have already gone up in recent years. In 2010, a record number of 59 claims were filed, with another 59 in 2012.

Most of the claims are against states and governments in the developing world. In 2011 Argentina found itself the recipient of 22 such claims, mostly arising from its economic policies to protect the country and its citizens from the worst economic crisis that hit the country in recent years. Similarly, Egypt was the target of most compensation claims from corporations in 2013. The growing number of claims has lent charge to arguments of the anti-ISDS activists that the ISDS clauses are being used by big corporation to curtail national sovereignty and economic and political policy making process of the states.

After long years of campaigning, the position of the campaigners has been given seal of approval by the pro-business influential magazine Economist that has found ISDS provision defective and open to abuse by corporations with knock on effects on the sovereign rights of states. TTIP, when finalised, has long-ranging implications for trade and investment for our globalised world. As such the negotiation process governing the TTIP should be transparent, open to scrutiny by the national parliaments, the civil society groups and the trade unions. In particular, the ISDS-related clauses should be vastly revised with sovereignty of states and the rights of their citizens balanced against the business interest of multinational corporations. In Britain, the Labour party has led the way in opposing incorporation of the ISDS in the TTIP.

One way out for the developing nations is to opt-out of the ISDS provisions in future trade and investment treaties. Brazil has not signed up to any trade and investment treaty that is freighted with ISDS provisions. Pakistan can do the same. In so doing Pakistan will be suitably expatiating its original sin of allowing the ISDS its first trial run in its  trade and investment treaty with Germany in 1959 during General Ayub’s military dictatorship. The government of Pakistan was the first one to sign up to this draconian bit of trade and investment regime which became a template for later trade and investment treaties all over the world. As such the country has responsibility to bring all facts related to the Reko Diq case into the public domain. One news item in this newspaper has laid bare how the Pakistan government is being forced into an out of court settlement involving billions of dollars of compensation money.

In the light of these developments the government of Pakistan and Balochistan should devise a joint response which has long-term interest of the people of Balochistan at heart. This response should involve working with other countries and campaigners to protect the interests of states and people’s rights which are in danger of being over-ridden in corporate-tilted agreements such as Reko Diq.
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Dr Arif Azad

The writer, a development consultant and public policy expert, writes on policy matters, politics and international affairs. He may be reached at drarifazad@gmail.com.

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